Buying Gold: Is It the Best Hedge Against Inflation?


buying gold

Are you thinking of investing in gold? You’re not alone – gold has long been an attractive option for people looking to diversify their portfolios and protect against the effects of inflation. But is it really a good investment? After all, gold prices can be volatile and hard to predict.

In this article, we’ll explore the benefits and drawbacks of investing in gold and how it could potentially serve as a hedge against inflation. We’ll give you the information you need to make an informed decision about whether or not buying gold is right for your financial goals. So, if you’re considering investing in the shiny stuff, read on!

The Basics of Gold Investing

In the world of investing, gold often stands out as a hedge against inflation, with its value remaining steady or even increasing in times of economic distress. But before you take the plunge into buying gold, it’s important to get familiar with the basics of gold investing.

Here are some key things to understand about gold investments:

  • Gold comes in various forms (e.g., coins, bars, jewelry).
  • Most investors buy either coins or bars for investing purposes.
  • Investors can purchase directly from mints or from brokers and dealers.
  • Precious metal exchanges track and report the spot price of gold (the current trading price).
  • There is a range of different types of ETFs that invest in gold.
  • Gold must be stored and insured in a secure location.
  • Fees such as storage fees, transaction fees, and taxes will apply to your gold investments.

It’s important to remember that while you can use gold as a hedge against inflation and financial risk, it may also come with some risks of its own. Therefore, it’s best to do your research and consult professional financial advisors before investing in gold – or any asset for that matter!

Pros and Cons of Buying Gold

Gold is often seen as a hedge against inflation, and for some investors, it makes sense to add gold to their investment portfolio. But before you buy gold, it is important to understand both the pros and the cons.


  • Gold has historically held its value over time, making it a good hedge against inflation.
  • Gold tends to increase in value when other investments like stocks or bonds decrease in value.
  • Gold can be a safer option than other commodities. Most gold transactions are exempt from government regulations or taxes, meaning they are more difficult to trace.


  • Because gold is not considered an official currency, it can be difficult to liquidate when needed.
  • Gold fluctuates in price with shifts in the market and requires more monitoring than stocks and bonds.
  • Gold is relatively illiquid—meaning that you may have difficulty finding buyers if you need to sell quickly.

What the Research Says About Gold Investments

Gold has been a valuable hedge against inflation for centuries and for good reason. The research tells us that gold increases in value when the cost of living does—which is why it’s seen as a reliable hedge against inflation.

Here’s an overview of some of the research studies to back this up:

  1. A study from the University of Portsmouth found that gold returns higher returns when inflation is high.
  2. A study from the University of Texas showed that gold can help reduce portfolio losses during times of high volatility or economic crises.
  3. Another study, this one by researchers at the University of St Gallen, found that gold investments can reduce risk and increase returns for investors over time.

The common thread to all these studies is that gold is an effective hedge against inflation—it can help protect your investments from instability and volatility, while also providing a potential source of long-term returns. If you’re worried about inflation eroding your savings over time, investing in gold could be an effective way to protect them from devaluation.

Different Types of Gold Investments

Gold investing is a lot more complex than it looks. Most people think of gold coins or a bar of gold, but there are actually quite a few different ways to invest in gold. Let’s go over the basics.

Physical gold

Physical gold can come in the form of coins or bars, and the value is based on its purity and weight. It’s important to note that this kind of gold usually isn’t cost-efficient because it comes with additional costs, like insurance, storage, and assaying fees.

Gold ETFs

ETF stands for exchange-traded fund, which is a fund that follows the price of certain bullion types (usually like gold, silver, and platinum). When you buy an ETF, you’re actually buying shares of that fund — just like buying stocks — which makes them easier to buy and sell on most stock exchanges.

Gold mining stocks

There are also stocks you can buy for gold miners who mine for the metal — after all, somebody has to actually get the metal out of the ground to do anything with it! Gold mining stocks have certain risks associated with them, too: if production is lower than expected due to a labor strike or other issues, their shares will take a hit.

When it comes to buying gold as an inflation hedge, there are quite a few options available if you know what to look for. Do your research ahead of time so you can make an informed decision about your investments—it’ll pay off in the long run!

Risk Factors to Consider Before Investing in Gold

When it comes to investing in gold, one thing you should keep in mind is that there are some risk factors involved. Here are a few that you should consider:


Gold prices can be volatile, so the value of your investment can go up and down in short periods of time. This means that you could end up losing money if the price of gold goes down before you manage to sell it at a higher price.

Counterparty Risk

When you buy gold, you are essentially relying on the counterparty (the person or company who is selling the gold) to do what they have promised – deliver the gold at the agreed-upon price. So when investing in gold, you need to make sure that the company you are dealing with is reputable and trustworthy.

Storage and Insurance

You also need to consider where and how you will store your gold investments, as well as whether or not it is necessary for you to get insurance for your investment. Storing your investments securely can help prevent theft and other losses, so this is something that should not be overlooked.

Finding the Right Spot for Your Gold Investment

When it comes to making your gold investment, you want to find the right spot. Gold is meant to hedge against inflation, so where you invest needs to offer the potential for long-term growth in order for it to work as a hedge.

Diversifying Your Portfolio

First and foremost, gold should always be seen as an additional asset within an overall portfolio. You’re looking for a diversified portfolio that contains both stocks and bonds, with gold representing a small percentage of your overall investments. The idea is that if your stocks and bonds take a hit due to inflation, gold can help buffer the loss by sustaining its value over time.

Gold ETFs vs Gold Funds vs Gold Bullion

When it comes to investing in gold, there are three main options: exchange-traded funds (ETFs) which track the price of gold; mutual funds with exposure to gold mining companies; or physical bullion like coins or bars.

Take some time to review each type of investment and how they could fit into your overall portfolio—you can research and compare different options before making a decision on what’s best for you.

No matter what option you choose when buying gold, always keep an eye out for low costs (management fees), taxes, and any other fees associated with each investment. Do your due diligence so that you know exactly what kind of return you’re getting on your money before committing to a gold purchase.


Ultimately, it is clear that there is no one-size-fits-all solution for hedging against inflation. For those who are highly risk-averse, gold can be a wise investment. But for those who are willing to take on some risk, a diversified portfolio of both stocks and bonds may prove to be a more effective hedge against inflation.

Nonetheless, investors should remember that all investments involve some degree of risk and should be approached with caution. As always, it is wise to consult with a financial advisor before making any investment decisions, and to research any potential investments thoroughly. With the right knowledge and the right plan, investors can make the best decisions to protect their wealth against inflation—and buying gold may be just one of those decisions.


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